Elon Musk And David Sacks Say PayPal Could Top $100B Away From Ebay.

Carl Icahn thinks eBay is damaging PayPal’s value. The billionaire investor now owns 2% of eBay and is calling for two board seats and for PayPal to be spun-off via IPO. “I don’t think eBay is a well-run company. When the tide is rising high, everyone looks good. Just compare eBay to Amazon,” Icahn told me recently. “PayPal is a jewel, and eBay is covering up its value.”
None other than Elon Musk, a PayPal cofounder, agrees with Icahn.
As Musk said during my recent feature on PayPal and the future of mobile money: “It doesn’t make sense that a global payment system is a subsidiary of an auction website… It’s as if Target owned Visa or something.” Musk, the billionaire polymath now running SpaceX and Tesla Motors says that PayPal “will get cut to pieces by Amazon payments or by other systems like Apple and by start-ups if it continues to be part of eBay… It will either wither or be spun out…Carl Icahn can see it, and he’s not exactly super tech savvy.”

 

David Sacks, the former PayPal COO who went on to start Yammer, agrees too. Musk and Sacks think that a standalone PayPal could eventually top a $100 billion valuation. Says Sacks: “If you allowed PayPal to pursue its destiny there are moves it could make to become the largest financial company in the world.”
What kind of moves could make PayPal, which many analysts think is worth about $40 billion of eBay’s $70 billion market cap, jump to $100 billion? Turn itself into a massive online bank.
Before we get into why, let’s take a quick look at how PayPal really rakes in money.
PayPal’s  Advantage:
PayPal makes it safe to buy and sell things from strangers online. It protects your bank account and credit card info–and ensures you get what you paid for. Like credit card companies, PayPal collects revenue through taking about 3% of the seller’s side of the transaction.
When you fund your purchase with say a Visa or MasterCard, PayPal must pay most of that 3% fee back to the credit card companies–it’s basically a wash for PayPal. But, when you have cash in your PayPal account or link it to your bank, PayPal gets to keep that 3%–a massive take in the slim-margin world of payment transactions.
It’s a big advantage PayPal has over competitors like Square, Stripe, Google Wallet and whatever Amazon and Apple have planned in fast approaching battle for mobile money. The battle is heating up. As I wrote earlier: Google released a wallet product for its nearly billion Android users and inked a deal with MasterCard to get access to millions of retailers. Apple has been able to use its retail stores as laboratories. It thinks it can convert its nearly 600 million iTunes customers to use the service offline and has slapped thumbprint readers on its iPhone 5s, with the idea of replacing credit card signatures. Amazon just announced that it’s developing a Kindle-based payment system to allow its 230 million customers to send money to each other and check out in stores.
With this fight fast approaching, PayPal needs people to keep their accounts flush with cash. But today, there is no incentive to keep money with PayPal. It doesn’t pay interest (not that there is much interest anywhere these days) nor does it offer automatic bill pay, direct deposit or checking. Better to fund your PayPal account with a credit card–at least that way you earn points, right? For PayPal to attract your cash (and reap those fat 3% processing fees) it must offer the same perks as your bank.
Banking on PayPal Banking:
Why do you have a bank account these days? For many–including me–it’s a place to send my paycheck, link my credit cards, access cash (via ATM) and write a check or two a month. In other words, banks are now a tool for payments–and that, according to David Sacks “is right in PayPal’s wheelhouse.”
Musk and Sacks think PayPal–which has more than 143 million users across 198 nations that moved more than $180 billion threw its pipes in 2013–can be better than your bank. But first, it must be able to do everything your local bank does–accept your paycheck via direct deposit, offer checking (there is already a PayPal debit card) and pay interest via money market accounts. Says Sacks: “Ultimately PayPal could offer a much better experience than your bank.” You’d get the power of PayPal’s massive global network and since PayPal makes money through payments (and won’t have to pay the overhead of running physical branches) it can offer the highest money market rates around and offer the  new banking features for free.
But before that happens both Musk and Sacks think that PayPal must be first spun-off of eBay –after all eBay, an online marketplace, does not want to be regulated like a bank. John Donahoe, eBay’s CEO, disagrees with the break-up: “EBay has accelerated and enhanced PayPal’s success, allowing it to be aggressive, bolder and to take more risks than if it was separate.” So does PayPal president David Marcus: “We’re growing faster in this configuration than we world in any other.” But Musk, Icahn and Sacks say that a business agreement could preserve the current synergies that exist between the eBay and PayPal—and the separation allows both companies to focus on their different missions.  And according to Icahn, allow eBay shareholders to reap the value they deserve.